Dow Chemical sees global economic slowdown

Published 6:15 am, Friday, July 27, 2012

The Dow Chemical Co. sees a tougher road ahead for the global economy than was expected even six months ago as European instability weighs down world demand.

Dow Chairman and CEO Andrew Liveris told chemical industry analysts Thursday that the company felt a turn in the economy in April as the financial crisis in Southern Europe affected Germany and other nations in Northern Europe. This caused a domino effect in Asia, hitting demand in two of Dow’s major business regions.

Liveris described this as a “synchronized global economic slowdown” as conditions deteriorated through the second quarter.

A Chinese stimulus plan to boost growth rates there could help, but Dow’s expectation for economic improvements have been lowered, now stretching 12 to 24 months into the future rather than the second half of 2012, as previously forecasted.

“The market is not giving us a lot, so frankly we have to take from the market what we can and really intervene,” Liveris said.

Dow has worked to improve its cash flow and lowered its net debt to capital even with a decline in earnings per share in the second quarter.

Liveris said the company is extending it’s near-term goal of $10 billion in earnings before certain factors are excluded because of the economic new reality, but will deliver on that goal.

Dow will continue to invest in long-term projects such as those on the U.S. Gulf Coast that take advantage of low natural gas prices and its Sadara Chemical Co. joint venture in Saudi Arabia. Capital expenditures will be lowered for businesses that don’t need capacity in a slowing global environment, Liveris said.

Cost-cutting measures have reached $600 million to date, and Liveris said Thursday that Dow has raised its goal from $1 billion in savings to $1.5 billion.

“We are focused on execution, concentrating on the things we can control and taking further steps to fortify our foundation,” he said.

During the call with analysts, Liveris also addressed the company’s $2.16 billion award for damages related to the failed K-Dow Petrochemical partnership with Petrochemical Industries Co. of Kuwait. PIC backed out of the proposed $17.4 billion joint venture with Dow in December 2008, leaving Dow in a difficult financial position just before its purchase of Pennsylvania-based Rohm and Haas Co.

Liveris said PIC is asking a higher court to further consider the damages, which is a typical step in the process for an award of this size. He said a final decision on the amount is expected in the fall, and it would take six to nine more months for the money to be turned over to Dow.

Dow’s use of cash in recent quarters has focused on rewarding shareholders, paying down debt and investing in growth within the company, he said.

“A reward of this significance will serve to accelerate our priorities for uses of cash,” Liveris said.